ASIC to investigate CBA's life insurance arm

The Australian Securities and Investments Commission will investigate allegations that the Commonwealth Bank's life insurance arm is denying heart attack claims by deliberately using an outdated definition buried in the policy.

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'It felt like a pitch fork in my chest'

When James Kessel had a severe heart attack, he thought CommInsure would come good on his policy. He was wrong.

The scandal escalates concerns about the culture inside the Commonwealth Bank, which is still trying to repair its reputation after a Senate inquiry recommended a royal commission into the bank's financial planning scandal.

The Senate has now adopted a motion moved by Senator John Williams to broaden the terms of reference of a financial services inquiry – scrutiny of financial advice (SOFA) – inquiry to include the $44 billion life insurance industry.

The motion was passed by all sides of politics and is expected to result in the Commonwealth Bank and its life insurance arm CommInsure​ being called up for a grilling over its poor conduct.

The latest allegations prompted CBA boss Ian Narev to release a statement over the weekend: "Life insurance is there to support customers and their families at times of great need and distress. Insurance providers have a responsibility to deal with claims as sensitively, as quickly and as fairly as possible."

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He is right. Life insurance is a $44 billion industry that was set up to give customers peace of mind. In return for paying premiums, customers have future-proofed themselves financially if something unexpected happens such as a heart attack, stroke, cancer – or far worse.

Reform needed fast

It is an important sector and it needs to be reformed – fast.

Unfortunately the industry has been largely left to reform itself, including create a voluntary code of conduct after ASIC found that more than 37 per cent of advice was in breach of the law.

The brutal reality is this code needs to be compulsory. Different insurers shouldn't be allowed to use different definitions for medical conditions such as a severe heart attack or stroke and there should be a limit on how long it takes an insurer to process a claim. That's for starters.

The goings on in CommInsure​ puts the spotlight on the shortcomings in the sector. CommInsure has been caught red-handed not acting in utmost good faith on certain policy definitions and the way it has treated some of the claimants.

Narev says he is "saddened and disappointed" by the handling of cases brought to him in the joint media investigation. "I will personally write to the customers concerned to apologise and offer to meet with them face to face."

He says among more than 4 million CommInsure customers there may be other similar cases, but says the evidence shows that in the vast majority of cases the right outcomes for customers are reached in the right way.

How he comes to this conclusion is debateable, particularly given the flood of emails from victims of CommInsure over the weekend.

He says in 2015 CommInsure paid more than $850 million of life and income protection payments to 22,000 people and their families. This equates to just over $38,000 a policy, which isn't high, particularly given some trauma policies are worth more than $1 million.

Narev also says the Financial Ombudsman Service reported that the likelihood of a dispute involving CommInsure was two per 100,000 policies. That is correct. But a more useful comparison would be what proportion of claims end in a dispute. Not all policies have claims and not all claims go to FOS. Some go to lawyers, some end up in court or go to another forum.

Denied claims

The joint investigation found that CommInsure has been denying heart attack claims by deliberately using an outdated definition buried in the policy.

It also found the way it approaches mental health issues and assesses potential policyholders leaves a lot to be desired.

Other revelations include the refusal to pay total permanent disability (TPD) and terminal illness claims on the chance that a dying person facing organ failure may have their life saved by a transplant. A person can claim their life insurance if they are declared terminally ill by two doctors and deemed likely to die within 12 months.

In one case a terminally ill person – who was on a transplant waiting list – was initially rejected because his policy was through industry fund HESTA, which had opened up a tender for a new life insurance provider. A senior claims manager suggested delaying the claim for as long as possible so that it would be dealt with by the new insurer if CommInsure's contract wasn't renewed.

A concern is that some executives at CommInsure were told in mid-2014 that the definition for measuring heart attacks was 10 years out of date.

Executives were told that an internal survey of 40 recent claims of heart attacks had found that 50 per cent of legitimate claims were being declined based on troponin levels alone. (Troponin is a protein released into the bloodstream when heart tissue is damaged).

Rejected using out-of-date definition

Despite this, the company continued to take premiums from customers such as 46-year-old James Kessel from Wee Waa, who lodged a claim shortly after having a severe heart attack in September 2014. His claim was rejected purely on this out-of-date definition.

Narev has acknowledged shortcomings in CommInsure's treatment of heart attacks and conceded the policy needed to be updated "to make it contemporary". He said the definition had been under review for a number of months and "we are going to make sure we accelerate it now to update the definition".

Nevertheless, the definition still on the website is the old one. That's the one financial advisers are selling and customers are still paying premiums on.

This definition and other policy definitions will raise alarm bells among financial planners who flog the products. One financial planner tweeted: "Expecting each insurer to confirm insurance definitions by email to all advisers after @adele_ferguson @4Corners report."

In the case of Kessel, The Australian Financial Review can reveal that CommInsure trawled through 14 years of his medical records to find possible non-disclosure issues.

An internal email in December 2014, says: "The same patient suffering the same heart attack 10 years ago would more likely than not have fulfilled strict policy terms. This is because the earlier generation troponin test kits in use 10 years ago would have more likely than not resulted in an absolute value that met policy terms." It went on to say "As discussed, absolute troponin levels is not a valid reflection of severity per se."

The email related to an internal ex gratia committee that was held to discuss Kessel's $1.1 million claim.

A manager of retail claims wrote: "We recommend that the committee consider this claim for ex-gratia payment and that the committee also discuss the amount paid."

Kessel didn't receive an ex gratia payment. He received $25,000 in partial payment for stents.

ASIC's deputy chairman Peter Kell says the life insurance sector needs to lift its game. "It's not in the long-term interests of the industry to create an environment where people feel like they're going to have to employ lawyers or initiate disputes, ah or go to the regulator, every time they want to make a life insurance claim," he said. Indeed.